3.
Our Guiding Principles and Values
1. We have a patriotic duty to come together on a plan
that will make America better off tomorrow than it is
today
 America cannot be great if we go broke. Our economy will not grow
and our country will not be able to compete without a plan to get
this crushing debt burden off our back.
 Throughout our history, Americans have always been willing to
sacrifice to make our nation stronger over the long haul. That’s the
promise of America: to give our children and grandchildren a better
life.
 American families have spent the past 2 years making tough
choices in their own lives. They expect us to do the same. The
American people are counting on us to put politics aside, pull
together not pull apart, and agree on a plan to live within our means
and make America strong for the long haul.3
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4.
Our Guiding Principles and Values
2. The Problem Is Real – the Solution Is Painful – There’s No
Easy Way Out – Everything Must Be On the Table – and
Washington Must Lead
 We must stabilize then reduce the national debt, or we could
spend $1 trillion a year in interest alone by 2020.
 A sensible, real plan requires shared sacrifice – and
Washington should lead the way and tighten its belt.
3. It Is Cruelly Wrong to Make Promises We Can’t Keep
 Our country has tough choices to make. Without regard to
party, we need to be willing to tell Americans the truth.
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7.
Our Guiding Principles and Values
9. Reform and Simplify the Tax Code
 Broaden base, lower rates, and bring down the deficit.
 Make America the best place to start and run a business and
create jobs.
 Cap revenue at or below 21% of GDP.
10. Keep America Sound Over the Long Run
 Ensure Social Security’s soundness and solvency.
 Reduce the long-term growth of health care costs.
 Reduce the debt burden as a share of GDP.
7
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8.
Five Part Plan
Our plan makes five basic recommendations:
1. Enact tough discretionary spending caps and provide $200
billion in illustrative domestic and defense savings in 2015.
2. Pass tax reform that dramatically reduces rates, simplifies the
code, broadens the base, and reduces the deficit.
3. Address the “Doc Fix” not through deficit spending but through
savings from payment reforms, cost-sharing, and malpractice
reform, and long-term measures to control health care cost
growth.
4. Achieve mandatory savings from farm subsidies, military and
civil service retirement.
5. Ensure Social Security solvency for the next 75 years while
reducing poverty among seniors.8
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9.
Highlights
 Achieves nearly $4 trillion in deficit reduction through 2020:
50+ specific ways to cut outdated programs and strengthen
competitiveness by making Washington cut and invest, not borrow
and spend.
 Reduces the deficit to 2.2% of GDP by 2015, exceeding President’s
goal of primary balance (about 3% of GDP).
 Reduces tax rates, abolishes the AMT, and cuts backdoor spending
in the tax code.
 Caps revenue at or below 21% of GDP and gets spending down to
22% and eventually to 21%.
 Stabilizes debt by 2014 and reduces debt to 60% of GDP by 2024
and 40% by 2037.
 Ensures lasting Social Security solvency, prevents projected 22%
cuts in 2037, reduces elderly poverty, and distributes burden fairly.
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10.
Cuts Debt to 60% of GDP in 2024,
Below 40% by 2037
*The Extended-Baseline Scenario generally assumes continuation of current law. The Alternative Fiscal Scenario incorporates several changes to current
law considered likely to happen, including the renewal of the 2001/2003 tax cuts on income below $250,000 per year, continued AMT patches, the
continuation of the estate tax at 2009 levels, and continued “Doc Fixes”. The Alternative Fiscal Scenario also assumes discretionary spending grows with
GDP (as opposed to inflation) over the next decade, that revenue does not increase as a percent of GDP after 2020, and that certain cost-reducing
measures in the health reform legislation are unsuccessful in slowing cost growth after 2020.
10
Co-Chair Proposal
CBO Extended-Baseline
Scenario (Current Law)*
CBO Alternative Fiscal
Scenario (Current Policy)*
0
20
40
60
80
100
120
140
160
180
200
2010 2015 2020 2025 2030 2035 2040
Debt as a Percent of GDP
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15.
Discretionary Spending Cuts
Goal: Spending Caps to Force Fiscal Discipline
 Restore fiscal discipline through spending caps that require us to make
choices, live within our means, and hold government accountable for
results
 Enforce discretionary caps with (1) a point of order against legislation
approving excess spending and (2) a sequester that is triggered at end
of session if final appropriations are above the cap
Proposal: Discretionary Spending Caps
 Rolls discretionary spending back to FY2010 levels for FY2012,
requires 1% cut in discretionary budget authority every year from
FY2013 though 2015
 Discretionary Budget Authority (BA) indexed to inflation from FY
2015 through FY2020
 Discretionary spending would be $204 billion (16%) below the
President’s budget and $127 billion (10%) below the CBO baseline in
2015
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DISCRETIONARY BUDGET

22.
Tax Reform
Goals:
 Lower Rates
 Simplify the Code
 Broaden the Base
 Cut Spending in the Tax Code (Tax Expenditures)
 Improve Compliance (Tax Gap)
 Make America the Best Place in the World to Start
and Grow a Business
 Reduce the Deficit
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COMPREHENSIVE TAX REFORM

23.
Option 1: The Zero Plan
 Consolidate the tax code into three individual rates and
one corporate rate
 Eliminate the AMT, Pease, and PEP
 Eliminate all $1.1 trillion of tax expenditures
 Dedicate a portion of savings to deficit reduction and
apply the rest to reduce all marginal tax rates
 Add back in any desired tax expenditures, and pay for
them by increasing one or all of the rates from their zero-
expenditure low
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COMPREHENSIVE TAX REFORM

28.
Option 3: Tax Reform Trigger
 Call on Finance and Ways & Means Committees and Treasury
to develop and enact comprehensive tax reform by end of 2012
 Put in place across-the-board “haircut” for itemized deductions,
employer health exclusion, and general business credits that
would take effect in 2013 if reform is not yet enacted
 Haircut would limit proportion of deductions and exclusions
individuals could take to around 85%* in 2015. Similarly,
corporations would only take some proportion of their general
business credits
 Set haircut to increase over time until tax reform is enacted
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*This is a very rough estimate of the haircut necessary to reduce the deficit by $80 billion in 2015
COMPREHENSIVE TAX REFORM

32.
Paying for the “Doc Fix”
 Pay doctors, other health providers, and drug companies less and
improve efficiency and quality
 Replace cuts required by SGR through 2015 with modest reductions
while directing CMS to establish a new payment system, beginning in
2015, to reduce costs and improve quality.
 Require rebates for brand-name drugs as a condition of participating
in Medicare Part D.
 Increase cost-sharing in Medicare
 Eliminate first-dollar coverage in Medigap plans.
 Replace existing cost-sharing rules with universal deductible, single
coinsurance rate, and catastrophic cap for Medicare Part A and Part B.
 Pay lawyers less and reduce the cost of defensive medicine
 Enact comprehensive medical malpractice liability reform to cap non-
economic and punitive damages and make other changes in tort law.
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MANDATORY BUDGET

36.
Long-Term Health Care Savings
 Set global target for total federal health expenditures after
2020 (Medicare, Medicaid, CHIP, exchange subsidies,
employer health exclusion), and review costs every 2 years.
Keep growth to GDP+1%.
 If costs have grown faster than targets (on average of
previous 5 years), require President to submit and Congress
to consider reforms to lower spending, such as:
 Increase premiums (or further increase cost-sharing)
 Overhaul the fee-for-service system
 Develop a premium support system for Medicare
 Add a robust public option and/or all-payer system in the exchange
 Further expand authority of IPAB
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MANDATORY BUDGET

37.
Mandatory Savings
Chained CPI
 Shift to chained CPI for all indexed programs
 Current measures of inflation overestimate increases in
cost of living by failing to account for “substitution bias”
 Adopting a more accurate measure of inflation would
achieve savings government-wide
Agriculture
 Reduce farm subsidies by $3 billion per year by reducing
direct payments and other subsidies, Conservation
Security Program funding, and funding for the Market
Access Program
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MANDATORY BUDGET

41.
Enforcing the Plan to Ensure
Deficit Reduction Goals Are Met
 Review, annually, whether the budget is on a sustainable path. Require
action by the President and Congress if:
 Prior to 2015, the budget is projected to be out of primary balance in 2015.
 After 2015, if the debt has increased as a percentage of GDP from the prior year.
 If action is needed:
 Require President’s budget to include recommendations to stabilize debt path.
 Require Congressional budget resolution to contain similar measures and offer
reconciliation instructions to reduce mandatory spending, increase revenues, and/or
modify the discretionary spending limits.
 Establish point of order against legislation that increases spending or reduces
revenues if Congress fails to pass a budget resolution that eliminates the shortfall.
 Allow Congress and the President to waive the requirements during years
with low economic growth, unanticipated military conflict, or major disaster.
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43.
Strengthening Social Security
Goals:
 Strengthen Social Security for the long haul by returning the
system to sustainable solvency.
 Prevent the 22% across the board benefit cut projected to
occur in 2037.
 Reduce elderly poverty by putting into place a new, effective
special minimum benefit.
 Enable system to continue to provide for a secure retirement
as the population grows older and Americans live longer.
 Reform Social Security for its own sake, not for deficit
reduction.
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MANDATORY BUDGET

44.
Reduce Elderly Poverty
Add new protections for the most vulnerable:
 Add a new special minimum benefit to keep full-career
minimum wage workers above the poverty threshold.
 Wage-index the minimum benefit to make sure it is
effective both now and in the future.
 Provide a benefit boost to older retirees most at risk of
outliving other retirement resources.
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MANDATORY BUDGET

45.
Ensure Long-Term
Social Security Solvency
Increase progressivity of benefit formula
 Gradually move to a more progressive benefit formula by creating a
new bendpoint at the 50th percentile and reducing upper
replacement factors slowly over time, phased in by 2050
Index retirement age to increases in longevity
 This option is projected to increase the age by one month every two
years after it reaches 67 under current law, meaning the normal
retirement age would reach 68 in about 2050 and 69 in about 2075
 Hardship exemption for those unable to work beyond 62
Switch to a more accurate measure of inflation (chained CPI)
for calculating COLAs
Include newly hired state and local workers in Social Security
after 2020
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MANDATORY BUDGET

46.
Broaden the Payroll Tax Base
Gradually increase the taxable maximum to capture 90
percent of wages by 2050
 Under current law, the taxable maximum is pegged to growth in
average wages. In 2009, the taxable maximum captured almost
86 percent of earnings, but it will fall to 82.5 percent by the end
of the decade.
 Phasing into a higher taxable maximum slowly will prevent large
marginal changes and will prevent rapid buildup of the trust fund.
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MANDATORY BUDGET

47.
Promote Smart Retirement Decisions
Allow greater flexibility in how benefits are claimed
 Give retirees the choice of collecting half their benefits early and the
other half at a later age to minimize impact of actuarial reduction
and support phased retirement options.
Direct SSA to design a way to provide for the early retirement
needs of workers in physical labor jobs
 Require SSA to have accommodation in place before longevity
indexation begins and set aside funds to pay for new policy.
Improve information on retirement choices
 Develop an education campaign to encourage greater personal
savings, delayed retirement, and phased retirement.
 Better inform beneficiaries of the costs and benefits of collecting
benefits early.
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MANDATORY BUDGET